So the issue I have with the transmutation stone system is that it’s not as good as the system used by Lord of the Rings Online (and many other games). I think a couple of changes could make it as good or better.
First, make available an unlimited version – my suggestion would be any player who spends $50 on single-use stones gets a permanent, account-wide stone.
Second, make it so instead of combining two items it just switches the stats of two items. So nothing is destroyed, and it’s reversible.
With those two changes the system does everything that having separate items for appearance and function does, but has an in-game explanation for what’s going on, and simpler inventory management.